Common facilities and inter-linked production can make two units one factory for exemption and clearance clubbing.

Separate registration does not by itself make two manufacturing units distinct factories for exemption purposes where they operate from the same with common entry and exit, shared electricity, boiler, water, raw materials, labour and inter-linked production. On that basis, clearances from the two units are liable to be clubbed for applying the relevant concessional duty notifications. The extended limitation period is unavailable where the units were separately registered after verification and separate returns disclosed exemption availment, because suppression, fraud or wilful misstatement is not established. Penalty under Section 11AC and the corresponding penalty rule is therefore not sustainable, and interest applies only to the extent and period permitted by law.

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Issues: (i) Whether Unit No. I and Unit No. II of the assessee were separate factories entitled to claim exemption separately under the relevant notifications, and whether their clearances were liable to be clubbed. (ii) Whether the demand was confined to the normal limitation period and whether penalty and interest were leviable.

Issue (i): Whether Unit No. I and Unit No. II of the assessee were separate factories entitled to claim exemption separately under the relevant notifications, and whether their clearances were liable to be clubbed.

Analysis: The exemption notifications granted concessional duty to paper and paper board manufactured in a factory, subject to prescribed conditions and quantity limits. The notifications did not contain any stipulation that clearances from different factories of the same manufacturer must be aggregated merely because the ownership was common. The decisive question was therefore whether the two units could be regarded as separate factories. The record showed that the units stood in the same compound with no separating wall, had common entry and exit gates, shared electricity, boiler, water facilities, raw material storage, workshops, labour and several manufacturing facilities, and the manufacturing processes were inter-linked. In the light of the statutory definition of factory and the principle that inter-linked units in the same cannot be treated as distinct factories merely because separate registrations exist, the units were not independent factories.

Conclusion: The two units were not separate factories and their clearances were required to be clubbed for exemption purposes.

Issue (ii): Whether the demand was confined to the normal limitation period and whether penalty and interest were leviable.

Analysis: The separate registration had been granted after verification and the units had been filing separate returns disclosing availment of exemption. On those facts, the ingredients for invoking suppression, fraud or wilful misstatement were not established, so the extended limitation period was not available. Consequently, penalty under Section 11AC and under the corresponding penalty rule was not sustainable. Interest under Section 11AB was held leviable only for the period for which that statutory liability applied, namely on clearances from 11.5.2001 onwards.

Conclusion: The demand was restricted to the normal limitation period, penalty was not imposable, and interest was payable only to the extent held applicable by law.

Final Conclusion: The appeal succeeded only to the extent of clubbing the clearances and confirming duty for the normal period, while relief was granted against extended limitation and penalty.

Ratio Decidendi: Where two units operate from the same with inter-linked manufacturing processes and common essential facilities, they constitute one factory for exemption purposes, and separate registration does not by itself create separate factory status.

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